Although the economic and financial state of the UK is currently uncertain, the increasing costs of renting paired with lower interest rates, makes home ownership an advantageous move. At 30 I have just purchased my own home and have found it a mammoth process as a first time buyer and moving in. Whilst the monthly mortgage price is comparatively affordable to rental, often the hurdle to purchasing a home is saving for a deposit and being accepted for a mortgage.
Why is a good credit score important for getting a mortgage?
Borrowers with higher credit scores commonly are eligible for mortgages with favourable terms, while those with lower usually face higher rates of interest. The most common UK sites to check your credit score are Experian, Equifax and Callcredit. We suggest using Noddle, who offer a free unlimited checking service. It is important to note it is not JUST credit score that lenders look at, it is your ability to repay the loan; they will also scrutinise bank statements for spending and savings, your employment history etc.
Make sure your credit report is accurate.
Read through and look for inaccuracies, such as closed accounts marked as open, or errors in address listings. Make sure everything is accurate and up to date and don’t be afraid to query with lenders anything that isn’t.
How to build your credit rating before getting a mortgage.
Think before you apply.
Being able to demonstrate you can borrow and repay money is positive, i.e. by applying for a credit building credit card or mobile phone contract. That said, don’t apply to every lender as this could actually be detrimental to your rating, as several applications close together could suggest you are under financial strain, being fraudulent or are frivolous with your spending. Space out applications.
Make sure debts are in your own name. Review your financial links to other people and ask for any outdated links, i.e. separation with ex partners, write and tell the debt agencies. Joint finance done with someone with a bad rating will affect your rating. If you split, write and tell the debt agencies.
A simple action is to register to vote at your current address. Having a home phone also often signals financial stability, particularly if you have lived at the same address for a number of years so consider installing a landline. Make sure all your debts are registered to your correct name and current address
Buy a calendar and use it!
Lenders want to be assured that you are a responsible and reliable borrower and will stay within the agreed credit limits. Late or missed repayments are proof of the opposite and can stay on a credit report for a number of years. Pay on time and keep up agreed repayments by setting up direct debits and asking for smaller repayments if you are finding things difficult. If you have extra money per month try and pay off more than the minimum off your credit cards.
Some advisors advise to close down any credit agreements you no longer use. I would consider if you have more than five or more then consider reducing the number to three. In terms of unused credit card accounts, heaving a long credit history helps increase your rating so why not occasionally use these cards instead.
To consolidate or not?
There are mixed messages in terms of if you should consolidate balances onto one credit card or distribute debts out over multiple low interest accounts. It’s a bit of a grey area and dependent on your own particular circumstances. If you can save a fortune in interest charges by consolidating then that’s a good option, if you are going to max out the one card then don’t, as this will detract from your credit score, even if you make on-time payments.
Consider a loan.
To give your credit score a boost, an alternative is to pay off high-interest credit card balances by applying for a small, personal debt consolidation loan for bad credit score.
Building your credit score won’t happen overnight. Also, be mindful that it is best practise to enquire about different lender rates but seeking multiple mortgage in principles or applications will leave a credit-application footprint which will have an effect on your credit score.
Are you looking to buy your first house or do you have any tips for buyers, a lender that you would suggest, something you wish you had known?
Note: This is a collaborative post.